Sensitivity Analysis of Portfolio Credit Derivatives by Conditional Monte Carlo Simulation

26 Pages Posted: 20 Jun 2019

See all articles by Lei Lei

Lei Lei

Chongqing University

Yijie Peng

Department of Industrial Engineering and Management, Peking University

Michael Fu

University of Maryland - College Park

Jianqiang Hu

Fudan University

Date Written: June 14, 2019

Abstract

We study sensitivity analysis of portfolio credit derivatives, including basket default swaps and collateralized debt obligations. An unbiased estimator is derived using conditional Monte Carlo for sensitivities with respect to systemic parameters (parameters that influence some or all the entities). Copula-based methods are used to model the joint distribution of the default times. Simulation experiments demonstrate the advantages of the proposed derivative estimator over other methods.

Keywords: simulation, stochastic gradient estimation, credit derivative, conditional Monte Carlo, copula model

Suggested Citation

Lei, Lei and Peng, Yijie and Fu, Michael and Hu, Jianqiang, Sensitivity Analysis of Portfolio Credit Derivatives by Conditional Monte Carlo Simulation (June 14, 2019). Available at SSRN: https://ssrn.com/abstract=3404231 or http://dx.doi.org/10.2139/ssrn.3404231

Lei Lei

Chongqing University ( email )

Shazheng Str 174, Shapingba District
Chongqing 400044, Chongqing 400030
China

Yijie Peng (Contact Author)

Department of Industrial Engineering and Management, Peking University ( email )

No. 38 Xueyuan Road
Haidian District
Beijing, Beijing 100871
China

HOME PAGE: http://en.coe.pku.edu.cn/Faculty-A-Z/163.htm

Michael Fu

University of Maryland - College Park ( email )

College Park, MD 20742
United States

Jianqiang Hu

Fudan University ( email )

670 Guoshun Road
Siyuan Building, Room 508
Shanghai, 200433
China

HOME PAGE: http://www.fdsm.fudan.edu.cn/en/teacher/preview.aspx?UID=91946

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